Wednesday, January 05, 2011

Growing Consumer Debt among Singaporeans.

"The recent big surge in housing loans and the growth of rollover balances raise the question of whether Singaporeans already facing one of the highest debt to income ratio in the world, have placed themselves in a precarious situation", Kuo How Nam, President CCS, ST Forum 5 Jan 2011.

Singaporeans did not place themselves in a precarious situation -the people in govt who failed to keep housing prices affordable and contain unsecured consumer lending did. I agree with Mr. Kuo that Singaporeans are in a precarious situation and many don't realise because the economy looks alright for now.

In the past 3 months, the total consumer debt in Singapore reached $150B. This figure consists of $111B housing debt and $40B in the form of credit card, car and unsecured loans. Mr. Kuo noted that the roll-over credit card debt has grown to a record $4B and the number of credit cards issued in Singapore has reached 6 million a figure that translates to roughly 6 credit cards for every eligible person with annual income above $30K. In the rest of the posting, I'll focus on issues surrounding credit card loans and unsecured debt among Singaporeans.

Lets start with a somewhat unusual question. Why do Singapore banks like hire American CEOs or bankers with experience in US who were part of the banking system that nearly failed? They hired them before, during and after the financial crisis...so it is not for lessons learnt on how to prevent a banking crisis. There are a few simple and sensible ways to stem the growth of unsecured credit/credit card loans but the Singapore govt will not do it even though it will be good for Singapore society as a whole. I'll tell you why in the later part of the article.

A few years ago, I went the the CCS to attend a talk. This talk [Link]is given weekly and compulsory for those who want to seek councelling from the CCS. I wanted to attend the talk to understand how CCS can help those in trouble and what the CCS does. Very often when we see articles of about people who run into debt problems there is a small box next to the article asking people to seek help from the CCS. ...the same way people are asked to go to NCPG (National Council of Problem Gambling) when the newspapers publish articles on problem gambling. Problems caused by consumer lending by banks are passed on to this small unit called the CCS which is registered as a charity and run by volunteers. With consumer debt of $150B and a rollover debt of $4B, you would think that something bigger than the CCS would be needed to handle the problems that surface. Given its limited resources, CCS does a decent job but there is only so much it can do for people who need help. During the CCS talk I attended, the presenter showed a simple flow chart - if you can pay the minimum sum for your loan, you go back and help yourself. Otherwise, they will talk to you to see if they can repackaged your debt repayment into a mazimum 5(?) year instalment at an effective interest of 13-15% by writing to the banks. They will advise to cut down your spending to keep your repayment period as short as possible i.e. do without your car, limit the number of times you dine out etc. If you're a hopeless case i.e. your debt cannot be repaid in a period acceptable by the banks, they will advise you to try to get help from relatives or friends, sell your property or file for bankruptcy. Throughout the talk, the present repeated this statement and in bold one of her slides: "What you owe is only money, do not pay with your life.....". Apparently, when people get to the point when they need help with their debt, they can be suicidal. Given its limited resources and setup, all the CCS could do is to give advice and write to banks - the banks used to have the right to reject the repayment plan and proceed with bankruptcy filings...in May 2009, the CCS was helped by a new legislation called the DRS (Debt Repayment Scheme) which compels the bank to accept repayment plan which the debt is less than $100K and the debtor has sufficient income to service the debt within a reason period.

The CCS' capacity to conduct talks to educate the public is limited compared with the 'mis-education' by banks that spend tens of millions on advertising telling consumers to borrow to spend on holidays, gadgets, weddings, etc. I changed my handphone number a few years ago because I sometimes received 3-4 calls a day from banks trying to entice me with low interest loans that later would balloon into toxic high interest loans. The problem is after I changed my phone number the banks somehow managed to get it and I'm starting to get these pesky calls from their telemarketers. The only reason why banks would offer low interet unsecured loan to customers is the knowledge that some customers would run into trouble and not be able to pay in full when the offer period ends and have to service the loan at very high interest rates. In other words, the banks are preying on their customers - this form of lending is known as predatory lending. Where did local banks learn all these 'tricks of consumer lending'? ...That is the anwer to the question why local banks like to hire American bankers to expand their consumer lending business and the whole idea is to turn ordinary Singaporeans into a cash cow - lending to them at high interest rates and turning them into credit card slaves...perpetually paying for their loans.

There are 2 simple solutions to the problem. When other govts discovered the problem caused by credit card lending and predatory lending by banks, they fixed it by capping the interest rates to about 13% - at that level banks would become more responsible in their lending by the banks. Examples are Malaysian and Taiwanese govts[Link]. This idea of limits was part of Obama's consumer protection bill but was shot down after the banks lobbied intensely against it[Link] because these high interest loans are very profitable. The other solution is to limit how much unsecured loans banks can make to an individual - today banks are allowed to lend 3 times an individual income. However, the MAS left a loophole - individuals overcome this limit by borrowing from multiple banks. What is required to fix this problem is for the MAS to fix this by limiting the number of unsecured loans an individual can apply for to 1 or 2 banks. These are simple solutions to fix a growing problem that harms our society. However, I doubt the PAP govt will do anything given that these activities are highly profitable for the banks and the PAP has been pro-business in its policies...also the PAP govt has interests in these banks and that always take priority over the interests of the people.

34 comments:

Anonymous said...

Has or will higher bank loans and growth, business and personal, especially housing loans, also contribute to higher GDP?

If so, then it is very good what. Because GDP growth, better still if double digit, is something we are very proud of and will always make the headlines.

More beautiful condos, more cars, high COE and of course more good years, happiness, properity and progress for our nation.

Singaporeans had indeed voted wisely in the past and no doubt also for the future.

http://vonhayek.blogspot.com/ said...

Do you know PAP and their banking cabal likes to put us in debt?

I give you the reason why below. Many do not realise that other than MAS, banks actually create monies. The technical term for this is "bank created monies" is M3 in USA.

But the differences from MAS monies is that, to create M3 there must be sucker who goes into debt.

This is what fractional reserve banking is all about.

The moment we borrow from banks, they created M3, and the moment we extinguishes our debt, we destroy M3, causing pains to the thieves in Shenton Way.

Hence, banks will collude with PAP whatever they can to put us into debt.

Their best opportunities is the moment we want to get marry(HDB), get education (thats y tution fee keep looking north).

Bankers cheers bragging that they are talent and receive big fat bonus every december.

However, when things blow up as in Ireland and UK now, banking cabal will blame social welfare, subsidize tution..etc whatever essential social service we can think of to show that we are profligate.

And they will request a hair cut in social service making everyone pay more. Other than that, they will also rob public coffers to bail them out (like POSB and Keppel Bank were ask to bail out cronies).

Elite cheers, and people are blame for the disaster elite created. I think its time Singapore as well as whole world get rid of the present establishment.

E said...

While I don't have any violent objections to Lucky's suggestions, somehow it'll penalize those responsible people who benefit from the discounts/rebates etc by having cards from different banks and pay credit card bills in full each time.

It's back to the perennial question of the extent of governmental intervention vs personal freedom.

http://vonhayek.blogspot.com/ said...

Even if we resist borrow as what lucky suggest and save like mad, we will still not be able to escape the enslavement by bankers.

Not too long ago, the older generation of Singaporean are savers. Then PAP screwed savers by property inflation which essentially wipe out the savings.

Then we started seeing newspaper running headlines glorifying reckless property flipper. Within a generation, Singaporean has been corrupted by PAP into a nation of speculator.

Lucky Tan said...

vonhayek,

Was talking to a friend in engineering. He told me they can't recruit the best people because the banks snap them up for $8K starting pay. We all know the story of what happens when the banking sector starts to devour the other productive sectors. Just look at Ireland and Iceland...and good old USA.

Lending activities much always be regulated. Otherwise, greed will take over common sense.

The high debt levels tells us the illusion of wealth created by high property prices is merely due to people willing take up more debt and enslave themselves due to overcrowding in Singapore not due to rising income. It is just no good. This high level of debt will make us all very vulnerable in the next downturn. When it comes, you can be quite sure the PAP govt simply push the blame down and say nobody ask you to borrow so much.

Anonymous said...

"Was talking to a friend in engineering. He told me they can't recruit the best people because the banks snap them up for $8K starting pay." - Lucky Tan

That's why we need so many foreign talents in engineering! If not, where got enough to do such work?

Cheaper? Definitely. Better and faster or lagi best? Depends lah.

This is called the effect of globalisation. Like it or not, you cannot escape from it.

Worst Singaporean said...

We are just repeating the same mistakes made by the Americans. Glorifying wealth regardless of how its created, and our brightest are drawn to innovate on financial engineering instead of creating real values.

Anonymous said...

But will this day come? Even during the biggest financial crisis, we have shown the other way round. The litmus test shown otherwise. Prices just keep moving up and up. If the financial crisis cannot bring us down, what will? Anyone has an answer?

Anonymous said...

q: why debt is good for singaporeans? answer: they cannot migrate and will stay as slave forever in this city. this is a plot the gov works with the bankers. in fact to solve current debt problem, the gov can easily cap the interest charged by banks to 2x the interest paid by banks to a deposit account thru a legislation.

Fox said...

There is a demand for debt because the cost of living for Singaporeans is going up and wages are simply not keeping up all thanks for our FT policy. We saw that in America. Real wages for the middle-class stagnated and Americans had to borrow more to maintain their standard of living.

There is less need for debt if Singaporean workers are paid better. Wages, as a percentage of GDP, are relatively low in Singapore. I think it is around 40 percent in Singapore vs. 55 to 60 percent in developed countries.

Alternatively, there ought to be large welfare transfers (maybe in the form of subsidized public transport, healthcare, etc) to the population to make up for the lack of disposable income.

Fox said...

Lucky,

"Was talking to a friend in engineering. He told me they can't recruit the best people because the banks snap them up for $8K starting pay."

Wages in manufacturing tend to be eroded easily because of technological advances. There's no point for manufacturers to pay more in labour when they can always invest more in technology. Service sector wages are more stable especially in developed countries. Even if we didn't have a banking sector, your friend still wouldn't have been able to recruit the best people because the brightest students would still choose to study law and medicine.

Anonymous said...

Re
"
We are just repeating the same mistakes made by the Americans. Glorifying wealth regardless of how its created, and our brightest are drawn to innovate on financial engineering instead of creating real values.
"

We must celebrate if our brightest really do financial engineering and not go into cesspool of "civil service" under the ticket of scholarship.

As an ex-civil servant, no words can describe the horror that I witness down there.

The thing parallel to our civil service is harlem or eunuch den. But then I think, even Geylang prostitute are like virgin compared to these thieves in civil service.

Over the years, look at what kind of public service we produce.
---
We got judge who free "Cleopatra Wong".

We got the worst sovereign fund in the world, worse than those cronies Arabic sheik sovereign fund

We got million dollar minister.

We got Liew Mun Leong who earn $20 million a year by making us suffer.

We got Wee Shu Min.

We got BG Lee, the youngest BG in the whole universe apart from Napoleon. (Kim Jong Un from North Korea has recently broken BG Lee record)
---

Oh no, I think I am guilty of "contempt of court" and lese majeste.

Anonymous said...

Aiyoh, when you rats gonna stop comparing with big american koks when we are small kok.

Good thing about small kok is we can poke many holes to get out of trouble. Bigger koks, on the other hand, not that flexible

that's why come rain or shine,we have learnt to be steady, not flaccid but erect and strong

and her assets are always full, appreciated and never under valued.

Anonymous said...

Re

"Even if we didn't have a banking sector, your friend still wouldn't have been able to recruit the best people because the brightest students would still choose to study law and medicine."

What you say is not absolute. Medicine and Law are profitable because fucking PAP allow trade union to run under the name of Law society and medical board, hand in hand with things like bar exam bla bla, all to limit the people practicing the trade.

What these cabal did, until very recently were to control the number of job entrance.

In countries like PRC, Mao mass produce doctors in order to provide cheap healthcare for its citizen. Also Mao and Deng Xiaoping respect engineers for knowing how to solve problems and create productive asset.

Hence, engineer are one of the more lucrative career choice, at least during 50- late 80s. Most PRC poliburo are former engineers.

Many of our problems are actually due to fucking PAP.

Fox said...

Doctors and lawyers are also paid better than engineers in South Korea and Malaysia. Whom do you want to blame in those countries? The Grand National Party? UMNO?

Anonymous said...

Re
"
Doctors and lawyers are also paid better than engineers in South Korea and Malaysia. Whom do you want to blame in those countries? The Grand National Party? UMNO?
"

Why not. Even asshole like Milton Friedman accuse doctor union as culprit of the high medical cost. Guess who is behind those unions?

And y not set up road sweeper union? I am sure everyone will then choose road sweeping career.

Anonymous said...

Dear Lucky

There is a typo. Its "counseling" not "councelling".

You know. Life is difficult.
And you can only solve problems by solving them.
i.e get your arse off the sofa and actually do something.

Right now, you are like a porn actress in a bad Japanese AV. Obviously, its rape but whining wont stop the attacker. In fact, it would encourage an encore.

You have 3 better choices.
1. Get elected.
2. Emigrate
3. Lay down like a dead fish and hope they lose interest.

Btw, you realize this article is unfavorable to Obama's backers/masters?!!

Anonymous said...

//
And y not set up road sweeper union? I am sure everyone will then choose road sweeping career.
//

Absolutely.
The unionized road sweeper in NYC is VERY WELL paid.

Lye Khuen Way said...

Thanks, Lucky for writing this post. Hopefully, some aspiring politicians when elected into Parliament can do something, if they do not lose their ideals & jest along the way.
I have this notion that MBA's especially those from Harvard Business School are a dangerous lot ! How dare me ?

Anonymous said...

Mr Fox

//
There is less need for debt if Singaporean workers are paid better. Wages, as a percentage of GDP, are relatively low in Singapore. I think it is around 40 percent in Singapore vs. 55 to 60 percent in developed countries.

Alternatively, there ought to be large welfare transfers (maybe in the form of subsidized public transport, healthcare, etc) to the population to make up for the lack of disposable income.
//

How about Germany as a role model?
Plenty of SME. Some equality. Social welfare.
And we now know that Hitler was financed by Wall Street so no historical baggage rite?

I know its run by Christians but Germany is the country that gave u nihilism and 1/4 are your fellow atheists.

Anonymous said...

You die your business approach is correct. Lucky seems to favor" you die is because of the gahmen".
he probably has no clue how that concept snaked into his consciousness.
But until we all say "you die your business", people, blind sheep, will not take responsibility for their lives.

That said, I prefer the " I warn you before you die becomes your business" which, I think is the gagmen's position.

Anonymous said...

Mr Lucky

//
Thanks, Lucky for writing this post. Hopefully, some aspiring politicians when elected into Parliament can do something, if they do not lose their ideals & jest along the way.
//

Any chance of you educating your hopeful readers about the PAP Party WHIP?

And btw, did you read about Goh Meng Seng and his UFOs? George "I am honest" Washington was a atheist and smoked pot but even he dint go about advertising it rite?!!! Personally I would be happy to vote for any1 with a pulse and not in PAP colors but sadly I could be in the minority again.

Carl Marx said...

hey hey hey, this time it is the American Bankers that had angered on our communist tan. Democracy, should you choose to embrace it's virtues and benefits, you have to take it's vices as well. yes it predatory, but ultimately people are given a choice. Failure to control your own finances and thus falling prey is not a fault of regulation.

In fact it is democracy at work, you are given the right to control all aspects of your life and you could have made good or bad choices. When it turns out bad, you blame democracy, you want a communist govt to make the seemingly right choice for you.

So whats next? why not pick on Mckinsey and co afterall they are the one who came up with lots of predatory process and strategies. Just look at the health inurance industry. Billions and billions made due to a 1980s groundbreaking report on how insurance CO should handle claims . Yes Yes YES, in Communist tan world, you are blamed for your brilliance, sucess and wealth. we are all so sorry we are making so much money....

http://vonhayek.blogspot.com/ said...

Re Carl Marx

We no need to go to extreme of communism. Just switch our currency to gold standard, you will see banks sacking 90% of employee, and bonus fallen by 99%.

Our financial capitalism nowadays is theft. PAP are thieves. I am not going one inch back my words.

Anonymous said...

One word to comment this whole damn article: Communist

Anonymous said...

Anon 09.31........Very shortsighted indeed. Havent you the slightest clue how China and other countries became communist states! In fact, with rising poverty, the US is on the road to communism.....no thanks to the greedy elites and politicians.

Anonymous said...

"Singaporeans did not place themselves in a precarious situation -the people in govt who failed to keep housing prices affordable and contain unsecured consumer lending did."

This statement supports having a nanny, authoritarian government. People have options eg renting instead of buying and not living beyond ones means.

Do we really want a govt that restricts what we can and cannot do, even when it comes to buying our homes and consuming our hard earned $$ (that we have or will earn)?

The government's role should be limited to providing some measure of stability, but not telling us how to spend our own resources.

http://vonhayek.blogspot.com/ said...

Re
"
The government's role should be limited to providing some measure of stability, but not telling us how to spend our own resources.
"

PAP is already worse a bunch of thieves, or robber. If PAP is really laissez faire, why not abolish the tyrannical and kleptocratic CPF system.

Day in day out, CPF account holder saw their net worth vaporize when PAP inflate property.

PAP only talk laissez faire when things are in their advantage.

JUN said...

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Anonymous said...

Although credit card lending is high, I doubt smart and to-the-ground Singaporeans are not unable to paid their debt simply because most of this contribution were payments on services like utilities, telecommunication (mobile, internet). Let's not forget Singapore is very wired.

But of course, the things that some Singaporeans currently can't afford are things like furnitures, consumer electronics and IT products, which every year Singapore is well-known to hold such exhibitions, from 4 to 6, slowly increasing. And the credit cards roadshows are always there.

I am wondering, is there really so much electronic stuff we need?

I am more concerned on unsecured loans especially those of sub-prime, which are huge amounts of loan(s) for any individual for the middle-lower economic classes.

If you are aware of the consumer banking, they pursue 2 types of unsecured products, one is credit card and the other is unsecured loans.

Even our savings bank is offering this kind of product to the masses. And the return of the $500 credit limit cards are also here.

Youngsters are consuming anything without any hardwork. It made them feel they can own anything, hence the recent fightings.

Its a socio-psychological effect cause by power of spending.

The only real, volatile danger that can cause Singaporeans unable to pay for the next few years is unemployment, but definitely, consumer lending has to be controlled more tightly.

Anonymous said...

Lucky

If you turn to the new paper anyday, you will find plenty of advertisement from licensed money lenders offering unsecured loans as long as you earn $1600 per month. With a stroke of a pen, the MAS has turned illegal moneylending into a legal business. The problems of Ah Long and the O$P$ is gone. With no fixed interest rates, this legal money lenders are charging at 173% per annum for a 6 weeks loan or 20% per week. What does our PAP government do--nothing. In any country would the government allow moneylenders to charge such rates. Unbeleivable- classsic

The Arthurian said...

Lucky Tan,
In your opening statement, you disagree with Kuo How Nam of CCS and say: "Singaporeans did not place themselves in a precarious situation -the people in govt ... did." I agree. The problem is policy. There is no room for argument on this point, I think.

As in Singapore, in the U.S. it is common to blame the debtors for their debt. But policy is at fault.

In the U.S. it is common to blame "Asians" for messing up the U.S. economy. This is an excuse made by policy-makers who do not understand how to make good policy. Policy is at fault.

You write more than I can read. But what I read, I like.

Art

Anonymous said...

Why do you need so many credit cards in the 1st place?

Anonymous said...

I was originally from China and became a citizen here several years back. For the past ten years, I truly felt that Singaporean's living standard is lower year after year. The way "you" tweak FT become worse than before. I don't want to blame anyone cause it is quit nature when we all have to fight in order to survive. Same thing happens in my hometown. But this government just became unbelievable ridiculous. The rumor is if you cast your vote to the wrong people, they will know! Please let me know if this is true......